Intuit shares sink 10% on outlook

Forecast overshadows 26% jump in profit

By

MichaelPaige

LOS ANGELES (MarketWatch) -- Intuit Inc.'s stock sank 10% on Friday as investors expressed their disappointment at the financial software firm's outlook, which overshadowed a 26% jump in quarterly profit and higher sales on strength in demand for its QuickBooks and TurboTax products.

Intuit's stock fell $5.55 to close at $49.25 after it raised its profit outlook for the fiscal year as a whole to a level that remained shy of analysts' estimates. The firm raised the low-end of its revenue forecast for the year.

The company's QuickBooks segment isn't expected to grow as quickly in the current second half of the year, compared to stronger-than-expected growth enjoyed during the first two quarters. Meanwhile, Intuit's TurboTax business is facing a slower expansion in retail sales for the overall category than executives had anticipated.

However, not everyone on Wall Street was left downbeat by the results.

Lehman Bros. analyst Rene Solorzano said that while the outlook disappointed some, "we would be buyers on weakness as we continue to favor Intuit's diversified product line, market leadership, and strong cash-flow generation."

Chief Executive Steve Bennett said during a conference call: "While we expect second-half growth to be solid, it won't be as strong on a comparison basis as the first half."

The CEO added that the company is focusing on investing revenue upside from its two largest businesses, looking at specific industry segments, in order to drive future growth.

"To sum up, I'm pleased with where we are," he said. "We've delivered a strong first half and we're on track to deliver another strong year."

Mountain View, Calif.-based Intuit said its fiscal second-quarter net profit rose to $184.9 million, or $1.02 a share, from $147.3 million, or 77 cents a share, a year earlier. The company's bottom-line results benefited from a gain of 14 cents a share from the sales of its Information Technology Solutions unit and also reflected a charge of 6 cents a share for stock-option expenses.

Revenue for the period ended Jan. 31 increased 15% to $742.7 million from $648.2 million -- topping analysts' estimates.

Intuit's QuickBooks-related revenue rose 16% and that of its consumer tax activities climbed 35%. The quarterly growth in TurboTax revenue was boosted by a change in when sales were recognized. Absent the change that brought forward $35 million in revenue to the just-reported period, the consumer tax segment's growth would have been 10%.

Excluding one-time items and discontinued operations, the company's profit would have come in at $176.5 million, or 97 cents a share, up from $151.5 million, or 80 cents a year ago.

Wall Street analysts expected Intuit to post a profit of 95 cents a share on revenue of $733.1 million, according to a Thomson First Call survey. View analyst snapshot.

On track for 'another strong year,' yet investors sell shares

The company updated its financial forecast "based on the strength of performance to date and greater visibility into the remainder of the year," Chief Financial Office Kiran Patel told analysts.

Intuit said it now expects a profit for the year to July 31 of $2.16 to $2.21 a share, up from $2.03 the preceding year, as revenue rises 9% to 11% to between $2.22 billion and $2.26 billion. After stripping out items and discontinued operations, the company put its profit for the year at $2.27 to $2.32 a share.

On average, analysts had been looking for a yearly profit of $2.33 a share on revenue of $2.25 billion. The company had previously anticipated a profit of $2.23 to $2.31 a share on a revenue increase of 8% to 11%.

The finance chief cited the difficulty in predicting quarterly results until the company is well into its fiscal second quarter, due to the seasonal patterns of its operations.

"Now that we have greater visibility into our seasonality, we have significantly lowered the upper-end of our third-quarter guidance," he said. "We've raised our fourth-quarter guidance and we've raised total year EPS guidance."

Intuit generates most of its revenue and profit in its second and third quarters, while normally posting a loss in its first and last quarter when its tax-related revenue falls off but costs remain relatively constant.

The company narrowed its financial forecast for the fiscal third quarter to the lower end of its prior predictions, while it forecast a narrower loss for the final quarter of its year and raised the bottom end of its revenue outlook for that period.

For the current fiscal third quarter, Intuit now expects a profit of $1.54 to $1.58 a share, or $1.62 to $1.66 on an adjusted basis. Revenue is expected to range from $860 million to $880 million.

For the following quarter, Intuit expects to post a loss of 15 cents to 17 cents a share -- or 7 cents to 9 cents a share after stripping out items and discontinued operations -- on revenue of $310 million to $330 million.

Analysts had been looking for a third-quarter profit of $1.74 a share on revenue of $895.5 million, and had modeled for a loss of 11 cents a share on revenue of $321 million for the following three-month period.

Intuit's stock has ranged in price from $39.21 to $55.94 over the past 52 weeks and by Thursday's closing bell, ahead of the results, had gained 2.8% for the year.

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